AGRICULTURAL CREDIT

Manawatu Times, Volume LIV, Issue 6809, 12 January 1929, Page 12

AGRICULTURAL CREDIT

AMERICAN LAND BANKS. OPERATIONS AND RESOURCES, BASIS OF LOCAL ASSOCIATIONS. An account of the operations of the federal land banks in the United States was given recently by the banking correspondent of the London Financial News. The twelve banks, one in each federal reserve district, were created as a Tesult of the passing in 1916 of the Federal Farm Loan Act; on September 30 last their total mortgage loans outstanding amounted to about £240,000,000. They are subject to the Federal Farm Loan Board, whoso members, apart from the Secretary of the Treasury, who is chairman ex-officio, are appointed by the President of the Republic. Originally the minimum subscribed capital of tho banks was fixed at £150,000 each, or £1,800,000 in all, and although the shares were, in the first instance, offered to the public, it was provided in the Act that unless the minimum amount was subscribed within 30 days from the date of tho offer, the balance was to be made up from Government funds. Provision was, however, made for tho capital holdings of the Government to be gradually reduced, and while in the early stages the Treasury subscribed almost the whole of the original capital the Government holding is now rather less than £90,000. This reduction has been achieved through the inflow of capital from the national farm loan association whose aggregate capital holdings affiount to approximately £12,500,000. Applicants’ Obligations.

A national farm loan association consists of 10 or morn- persons who own or are about to own land eligible as security under tho Act, and are desirous of obtaining an advance. Every applicant for a loan has to. subscribe for an amount of stock in his association equal to 5 per cent, of the required advance, payment for the stock being made out of tho proceeds of the loan. The association, in turn, when forwarding tho application for tho accommodation to the federal land bank has to apply for stock in that institution equal to 5 per cent, of the loan, and in this way the capital resources of the latter have been raised to their present figure. When the loan is repaid the capital subscribed in connection with it is automatically retired. Tho resources of the federal laud banks are augmented, from time to time, by the issue of bonds, and, as these banks are now able to borrow on an interest basis of about 4J per cent., they are, in turn, able to make loans to agriculturists on comparatively easy terms. Although these bonds are not Government obligations and are not guaranteed by the Government, they are the secured obligations of banks operating under Federal charter with Governmental supervision. Conditions of Mortgages,

Moreover, tlxe security behind the bonds is unimpeachable, as not only are the bonds the primary obligation of the individual banks issuing them, but all 12 of the banks are also liable for the principal and interest on each bond, and the law requires that the bonds be secured by collateral consisting of at least an equal amount of United States Government bonds, cash or mortgages on farm lands which must be:— (a) First mortgages, to an amount not exceeding 50 per cent, of the value of the permanent insured improvements as appraised by land bank appraisers appointed by the Federal Farm Loan Board; (b) Limited to £SOOO to any one borrower; (c) Guaranteed by local national farm loan association whose stock, which carries a double liability, is owned by the borrower-members; and (d) Reduced each year by payment of part of tho mortgage debt. The purpose for which loans are granted are:—(a) To provide for the purchase of land for agricultural uses; (b) To provide for the purchase o± equipment, fertilisers, and livestock necessary for the proper and reasonable operation of the mortgaged farm; (c) To provide buildings and for the improvement of farm lands; (d) fo liquidate indebtedness of the owner of the land mortgaged, or indebtedness subsequently incurred for purposes covered by the Act. The loans have to bo repaid within a fixed period by regular annual or semi-annual instalments. •